Croatia: Critics over consultancy services for power utility HEP

19. June 2015. / SEE Energy News

President of Green oriented party ORAH Mirela Holy, Dr. Sc. Milan Puharic, energy expert and Mladen Novak, an independent parliament member, pointed at the press conference to the non-transparent spending of HEP money in various consulting and marketing services.

Early April, Holy submitted a parliamentary question to the Government on this subject, and in response, except the bare acknowledgment that HEP has entered into cooperation agreements that Holy stated in the question, it was not presented any concrete information. Therefore, parliament members and Dr. Sc. Puharic expressed suspicion of corruption affairs because it was completely unclear why HEP used consultants when it has available 12,000 employees in all professions (engineers, lawyers, economists, etc.) who were certainly more professional from outside experts. They pointed out that in the HEP history, according to HEP employees, never were used such services to this extent. These are the following contracts that the Government of THE Republic of Croatia acknowledges in its reply: the engagement of external consultants to evaluate the tenders for Plomin C; study on HEP restructuring; study on the operational and strategic restructuring of HEP Distribution System Operator and support in their implementation; engagement of external consultants for the attempted sale of the already built wind power plants (total of eight); engagement of the marketing company Real group by HEP sector for products and services development, which paid 2, 65 MEUR to Real group in 2014th.

“According to the information received for the Study on HEP restructuring so far has been paid about 926 thousand EUR, the study is not completed, and the annexes in the amount of 212 thousand EUR have been sought. The study of operational and strategic restructuring of HEP Distribution System Operator and implementation support is estimated at1, 12 MEUR. After restructuring, HEP Ltd. continues with the subsidiaries restructuring which there are numerous, so this raises the question of how the work will ultimately stand and whether HEP is able to implement the company restructuring without help”, it was said at the conference. Although the Government claims in response that the project of TPP Plomin C is the key HEP strategic project, speakers consider that now is absolutely clear that the project in which HEP has invested a lot of money will not be realized because HEP will not get the green light from the EU for the conclusion of eligible contract to purchase electricity from Marubeni that in several countries was condemned for bribery. HEP has negotiated with Marubeni on price between 70 and 120 EUR per MW, while the current market price is 35 EUR per MW.

In ORAH emphasize that the particular problem is the Centre for Monitoring energy investments that has no other purpose than extracting money from HEP and other energy companies. In August 2012th, CEI launched a competition for financial consultancy in the energy sector with a view to concluding a framework agreement for a period of 4 years, and the amount was 11, 6 MEUR. This was followed by a competition for legal advice in the amount of 3, 3 MEUR. “This imposes the question what kind of consulting institution is that which rather than monitoring investment by itself hires other consultants, and the only correct conclusion is that the basic purpose of the CEI was a money transfer from public companies, primarily HEP, in various pockets of consultants and bankers . It is absurd that among the engaged consultants there are no experts in the energy sector, but these are mainly the audit companies that should be engaged after the construction of energy facilities and not at the stage of conception and implementation of feasibility studies”, it was said in the statement.

A representative Mladen Novak gave special attention to attempted HEP privatization with the help of IPO model. Specifically, the choice of financial advisor for HEP privatization is in the procedure, and this decision did not follow the implementation of a comprehensive debate within the Croatian Electric Power Industry Ltd. and the question is whether HEP Management informed the Government of Croatia on the progress and results of the aforementioned restructuring study namely, does it make sense to hire consultants for the privatization, if the outlines of the new HEP organization and its adaptation to the third energy package are unknown.

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